Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Talisman Energy Inc. 2012 First Quarter Results Conference Call. [Operator Instructions]

This call contains forward-looking information. Certain material factors and assumptions were applied in making the forecasts and projections to be discussed in this call, and actual results could differ materially from those anticipated by Talisman and described in the forward-looking information.

Please refer to the cautionary advisories in the May 1, 2012, news release and Talisman's most recent Annual Information Form, which contain additional information about the applicable risk factors and assumptions.

I would like to remind everyone that this conference call is being recorded on Tuesday, May 1, at 8:30 a.m. Mountain Time.

I will now turn the conference over to Mr. John Manzoni. You may begin your conference.

John A. Manzoni

Thank you, Michelle. Ladies and gentlemen, good morning. And thank you for joining our call today. As usual, I'm joined by the management team here in Calgary, who will help to answer your questions after Scott and I have given you the main points on the quarter.

A word about commodity price outlook is context to what I shall talk about in terms of our capital program for the year. Gas prices here in North America continue to reflect the combination of oversupply and an unusually warm winter and have remained below what we believe to be a necessary long term equilibrium price. However, with the injection season now upon us, it's quite possible that this gets even worse before it gets better and we've adjusted our capital plans accordingly.

There are some early voices of optimism that the coal switching, which has occurred over the last quarter will play a role in accelerating the recovery, but I don't think anyone is expecting positive news until at least the end of this year. And we need to be ready for this to last well into 2013.

Oil prices have been strong, and we believe Brent will continue to be underpinned at the $90 to $100 a barrel range. We should expect some volatility around that just as we're seeing today on the upside as a result of geopolitics, but as a base projection, we remain comfortable in the $90 to $100 range.

Turning to the first quarter. We had a strong quarter in terms of operating results. Production was very strong with 462,000 barrels a day, 4% above the equivalent quarter last year, and underpinned by a very strong quarter in both North America, which was driven by the shale being about 50% higher than a year ago and by Southeast Asia, which had a record gas production quarter delivering 136,000 barrels a day.

Cash flow was up 5% over the first quarter last year. Prices and volumes were up, but were offset to some extent by higher taxes and higher costs. Earnings from operations were $167 million for the quarter, reflecting higher prices, but also higher costs than a year ago and a higher DD&A rate, which Scott will explain in a moment. Costs were down from the fourth quarter last year when you may recall we had significant shutdown activity, particularly in the North Sea, but they're up on the equivalent quarter a year ago. This reflects in part increased activity since that time for instance, we've now got operations in Kitan in Australia, Jambi in Indonesia and Equion in Colombia.

In North America, we've also flowed through the new Pennsylvania impact fee, which this quarter includes a historical component. If we exclude the historical part of the impact fee, we continue to see a trend of reducing unit cost in the Shale business.

In the exploration portfolio, we found a significant oil leg in the Kurdamir-2 well in Kurdistan, which is sufficiently encouraging for us to plan an appraisal program on the structure. It's early days, but we are very encouraged by what we see so far. And in Papua New Guinea, our exploration wells continue to turn up what we expected, which is that the structures we are drilling tend to be full to spill. The latest well, Ketu-2, was another very positive result and is building on our gas resource exactly according to plan.

In Colombia, it's a little slow as we wait for the authorities to grant the relevant operating permits, but we're making progress, and I expect through this year we will see increasing news flow. In Vietnam, we started drilling the Ngoc Thach exploration well in Block 5.2 in the Nam Con Son Basin. We wrote-off the unsuccessful Situche Norte well in Peru. We hope that well would more or less doubled the commercial reserves we all already have in Peru, but it didn't work. We are reviewing now how to proceed in Peru in light of that result, and we'll finalize our plans in the next quarter.

We've had a good start to the year with disposals and have secured about $1 billion so far. This is about focusing our portfolio. We continue to examine options in the North Sea, including the dilution of some of our big redevelopment projects there, and I've also said we'll look at our exploration portfolio.

As I've just mentioned, we've recently drilled a dry hole in Peru, and we also drilled dry hole in South Makassar. And we're in the final stages of determining our forward plans for both places. I'm confident we'll achieve our original objective of $1 billion to $2 billion as we go through the rest of the year.

Another highlight for the first quarter is the provisional award of 60% equity and operatorship for the producing Kinabalu field offshore Malaysia. We've agreed all commercial terms with PETRONAS for the award of a new PSC at Kinabalu, which is offshore Sabah, subject to formal signing, which is expected within the next few weeks.